DBRS Confirms Brompton Lifeco Split Corp. Preferred Shares at Pfd-4 (high), Removes it from Under Review with Positive Implications

DBRS has today confirmed the rating of the Preferred Shares issued by Brompton Lifeco Split Corp. (the Company) at Pfd-4 (high) and has removed it from Under Review with Positive Implications. In April 2007, the Company issued 3.1 million Preferred Shares (at $10.00 each), along with an equal number of Class A Shares (at $15.00 each). The termination date for both classes of shares issued was originally April 30, 2014, but was extended to April 29, 2019.

The Company holds a portfolio consisting primarily of common shares of the four largest publicly traded Canadian life insurance companies (the Portfolio). As of September 30, 2014, the Portfolio’s composition was: Great-West Lifeco Inc. (25.2%), Sun Life Financial Inc. (25.0%), Manulife Financial Corporation (24.7%) and Industrial Alliance Insurance and Financial Services Inc. (24.5%). The Portfolio was initially equally weighted and is subject to annual rebalancing.

As part of the term extension, the fixed cumulative quarterly distributions to the Preferred Shares will be increased to $0.14375 per preferred share starting May 1, 2014, yielding 5.75% annually on their issue price of $10.00 per share (up from 5.25% previously). Holders of the Class A Shares are expected to continue receiving regular monthly targeted cash distributions of $0.075 per share, yielding 6% annually on their issue price of $15.00 per share. Class A Share distributions were suspended in March 2011 because the Company’s net asset value fell below $15.00 per unit (i.e., 33% downside protection), but were reinstated in July 2013.

On April 21, 2014, DBRS placed the ratings of the Preferred Shares Under Review with Positive Implications. Since then, the performance of the Company has been volatile, with downside protection dropping to 34.8% as of October 17, 2014, from 37.2% as of April 10, 2014. Because of the volatility and recent negative trend, the rating of the Preferred Shares has been confirmed and removed from Under Review with Positive Implications.

DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Canadian Split Share Companies and Trusts (July 2014), which can be found on our website under Methodologies.